As your organization prepares for business travel to begin again post COVID-19, it’s important to understand what the new normal could look like and how you can plan for it.
In early October 2001, a month after the Sept. 11 terror attacks jolted the travel industry, one corporate travel buyer told Business Travel News he didn’t think business travel would ever return to the volume it once was. Instead, he predicted, video conferencing would be the new way forward for many companies.
He wasn’t alone; the trauma of that event combined with the weakened economy seemed to spell the end of business travel as it was then known, at least for the U.S.
Two years later, in the early spring of 2003, Asia took a critical hit as the outbreak of severe acute respiratory syndrome (SARS) spread to 29 countries and regions across most continents.
In April 2010, the eruption of the Eyjafjallajökull volcano in Iceland grounded 100,000 flights in Europe during a period of seven days, stranding thousands of travelers and costing the global economy US$5 billion.
The corporate travel industry has experienced disruption before. It has experienced the unexpected before. Each time these events are called unprecedented. And each time we’re confronted with one, we reach into the past to try to understand what previous unprecedented incidents can tell us about the present.
For the current COVID-19 crisis, the unexpected events of the early 21st century prove inadequate in mapping what recovery could look like. That’s because this is an incident without a clear timeline and without a clear end in sight.
And yet, organizations everywhere are now, or soon will be, tasked with trying to navigate a return to business in the face of this uncertainty. It will not be pretty.
The International Monetary Fund is predicting the worst global economic downturn since the Great Depression. Firms that have answered the call to produce ventilators, personal protective equipment and hand sanitizer will require time to shift back to their previous manufacturing activities. Supply chains will need to be rebuilt and adapted as COVID-19 restrictions continue to expand and retract on a country-by-country basis for the foreseeable future. Job losses—projected by the International Labour Organization to reach 195 million in the second quarter—will need to be addressed.
Everyone will need to re-evaluate their relationship with travel.
Within our industry, we may see the merging or total disappearance of well-established brands. IATA estimates airlines will burn through $61 billion in cash reserves during the second quarter as revenues plummet 68 percent year over year.
The number of closed hotel properties around the globe totaled at least 24,000 as of April 7, according to hotel data analytics company TRIPBAM, with the world’s largest hoteliers having furloughed or laid off significant portions of their workforce to mitigate the impact of non-existent demand.
Travel management companies devastated by the sharp drop off in business travel transaction fees have opted to furlough or layoff the majority of their workforce to try to stay afloat through the coming months. Some may not succeed. New players from outside traditional travel may emerge.
It’s safe to assume that any pre-existing trend that has received an additional boost by the current COVID-19 environment—such as working from home, remote meetings and software-as-a-service models—will see a lasting effect when the crisis ends.
Anything that doesn’t fit that criteria? It’s too soon to say what will change. Or what recovery looks like.
A return to business will not be pretty, but it will be possible.
Travel buyers need to be ready for a range of impacts and eventualities, including increased cost, reduced service and support, out-of-date supplier agreements and more. In the coming weeks, we at Nina and Pinta would like to help travel buyers do just that: prepare for the return of business travel post COVID-19.
In the following pages, we’ll zero in on five specific trends for the post-COVID-19 return to business travel, helping you understand what changes have taken place, how your program could be affected and what specific strategies you can deploy in your organization moving forward.
1. Reduced Service
Will there be a return to “normal” business after the pandemic? Well, that is difficult to judge as there are so many variables. The most obvious one seems to be that there is unlikely to be an end to the pandemic until a vaccine is found and the best case scenarios still put this at 12-18 months away.
It is unlikely that we will remain in this lockdown (shelter in place) environment until then, however. A collapsed economy serves nobody, so how will this transition into some form of movement again and what will it look like?
We suspect that movement will start gradually – beginning with short, domestic journeys largely via ground transportation – before transitioning to the longer trips such as regional (international is most parts of the world or bi-coastal in the U.S. and Canada) before the long haul trips come back into play as the new normal.
This will be influenced by any number of factors, not the least of which include virus flare ups where governments may once again close borders and restrict travel. Additionally, travelers may not feel comfortable traveling and this will need to be a factor for consideration for organizations.
Perhaps antibody tests (whilst currently no guarantee of safety) may also be a factor in being allowed to travel once more. So it is unlikely that we will see a sustained return to a network of transport services in the short term. This will require much more flexibility on behalf of the traveller and the organisation. It will also mean that terms and conditions for travel will need to modify from what they were and become much more flexible in how they are.
It also means that normal service is unlikely to be resumed in the short or medium terms.
Look at aviation in particular. Those airlines that survive this pandemic will have new financial obligations and in some cases different shareholders and stakeholders they are going to be accountable to. This will mean they will review a return to service through very strategic eyes to the P&L of each route.
Airlines will be looking to return on their busiest and most profitable routes first. It is unlikely that we will see a ubiquitous push back to normal network services. Even on those routes, expect reduced service initially. This could have a big impact on pricing – particularly if seats need to be taken out of service, such as middle seats.
Overall, we are likely to see reduced service and increased pricing. Regional routes where airlines were providing essential transport links to/from remote areas are unlikely to reappear for some time, which may result in certain parts of the world remaining remote for longer than others. Although in the US, part of the DOT bailout agreement is that the US Government can also dictate which routes are served. This means that in the US Domestic markets, we may see only 1 airline serving a particular route, which of course will mean reduced competition.
It is also likely that corporate business will be the deciding factors on the routes that return as this is likely to be the first demographic to start traveling again. Reports indicate that in the tourism sector, travelers are likely to “step back” by traveling closer to home and not traveling internationally for quite some time.
Reduced service will have a big impact on supply and demand levers for the medium term. This will apply to hotels as well.
A TRIPBAM report from early April highlighted approximately 24,000 hotels closed for business. It is not a given that all of these will return or open again as hotels. Indicators show, however, that their strategy for recovery is likely to be different from the airlines in that the hotels will lower pricing in order to incentivize guests to stay with them.
One of the most impactful service providers for the corporate buyer is of course the TMC and here is where we are likely to experience the biggest challenges with a return to normal.
While most TMCs have furloughed the majority of their operational staff, powering back up to normal service is going to be driven by customer demand.
Expect a drive to push service online as much as possible to alleviate the pressure on the front line staff. However, for those customers that have a significant number of unused tickets, this will be an issue as these typically cannot be utilized through an online service.
Additionally, a number of customers will have seen their service configuration changed from a designated or dedicated service to a call center environment through the crisis. At what point this reverts back to “business as usual” is going to be driven largely by the corporation’s transaction numbers.
This crisis has highlighted the risks for TMCs in the transaction fee model, and for those that survive it, it is likely that there will be pricing adjustment discussions from the TMCs prior to any return to pre-pandemic levels of service.
It is therefore likely that we will see some discord between the customer service requirements and the TMC service provision in the short term.
While a recent GBTA survey has shown that 62% of businesses think this pandemic will change the way companies do business in the future, our prediction is that it will return.
While virtual technology has allowed everyone to keep going during the pandemic, it is unlikely to be a longer term solution as it has also highlighted its shortcomings. Businesses will need to recover and make up for the effect of this pandemic on the other side of this. Our prediction therefore is that when health, governments restrictions and schedules allow for it, there will be a desire to get out into the field to generate revenue and boost business performance.
Things to consider:
- Have open and honest conversations with your TMC now.
- How are they planning a return to business for your team?
- What are the factors of consideration for them before they can power back up to pre-pandemic resource levels?
- Will this have any impact on your contractual financial agreements?
- What are your plans for getting your travelers moving again? Engage with HR and budget holders to understand what the business requirements are likely to be so that you and your TMC can plan resource and service requirements accordingly.
- Determine your plan B. What is your plan should there be any material changes within your existing supply chain (including your TMC)?
- Discuss with your existing supply chain what their plans for returning to business are.
- For airlines: What are the restrictions that they will apply (empty middle seat, cleaning processes, initial routes to return) and their current timelines?
- For hotels: What are their plans for opening and what restrictions they will apply (staffing levels, cleaning services, number of rooms and facilities opening in the first wave) and their timelines?
- Agree on an unused ticket strategy with your TMC. Ascertain the current situation regarding airline ticket credits and agree on a strategy with your TMC about how these will be utilized. Look to discuss this with agreed upon timelines for utilization.
2. The New Normal
One of the most surprising observations of the COVID-19 led travel industry shutdown has been the shock and surprise expressed by a number of commentators at the severity and intensity of the impact and potential consequences of the crisis.
It’s not as if we couldn’t have seen this coming. Bill Gates predicted that global contagion would represent the biggest threat to the global economy some five years ago (https://youtu.be/6Af6b_wyiwI). Hindsight is a glorious thing but even with precursors like SARS, 9/11 and the 2010 volcanic ash cloud, the travel industry was unprepared for the hard stop of COVID-19.
Many are now coming to see this as an opportunity for business travel to finally shed some of the antiquated process and financial models of the last 50 years and create instead modern, solution-orientated business models for the next decade and beyond.
Plato said necessity is the mother of invention. In order to cope with the COVID-19 crisis, corporates and travel suppliers have had to usher in a number of changes very quickly. We’re talking simplification of business processes, reconfiguration of tech stacks, upgrades to policies and altered work behaviors. Traveller confidence is at an all-time low and the financial basis for many relationships in the value chain need to be redefined urgently and sensitively.
Agile to succeed
The return from COVID-19 will be fractured and unpredictable. It’s no coincidence that many SaaS businesses have performed better during this period than their more traditional transaction based counterparts. Its very hard to charge and make a return on your transaction if there is nothing being transacted, yet your business relationships continue and expectations still have to be met.
Historically the travel industry — especially the business travel sector — has operated using fairly linear systems and processes. Waterfall/sequential design processes have meant that most travel technology or product takes years to get to market, often long after demand has elapsed or been replaced. Six Sigma may be thorough and consultative but it ain’t quick or nimble.
Different markets and segments will likely emerge at different speeds and then return to lockdown unexpectedly or as part of a phased approach. Successful companies will be those that are able to apply Agile processes to incrementally flex products and services according to opportunity and development. Prioritizing and identifying the areas of your value proposition for early return with a clear assignment of resource and talent will be key.
No turning back
Many in our sector — especially in the airline and TMC verticals — have fundamentally changed processes and inventory in order to survive the current crisis and emerge with their customers when travel returns.
The larger TMCs have realigned tech stacks and operational processes to accommodate follow-the-sun service models. To do this they have had to eliminate some customized elements of the transaction process as well as accept significant standardization in other areas. There is no reason to revert the old process and cost-heavy operational structures. Corporate buyers should be aware that many elements that have been taken for granted in the old world may simply no longer be relevant or desirable in the new with consequences for travel policy and management.
The impact of contagion awareness should also not be underestimated. Persuading travelers to climb back into airplanes to fly to countries heavily affected by COVID-19 will take a concerted effort in safety preparation and communication. We already know that airline seat configurations, hotel check-ins, airports, train stations and taxi services will have to adjust to an infection-conscious and socially distanced traveller.
Companies, travelers and suppliers will require a new, more robust kind of dialogue in order to re-establish traveller confidence. Travelers will need to be allowed to ask more questions than in the past about how they are being kept safe and what is considered acceptable and unacceptable. Suppliers will need to be clearer with both travelers and corporates about what’s being done to mitigate risks and keep travelers safe. Companies will need to have the means to facilitate all these conversations on an individual traveller level, a company level and on a supplier partnership level.
Policy & Profile
Traveller profiles and their ownership will become a source of significant discussion. Requirements for health certificates, medical histories, contact tracing and even potentially family history will change the way profiles are managed and, consequentially, how travel policy is set and reviewed. Ownership for policy may even pass out of HR and Finance into a more combined environment where IT and Security play a key role.
A very different kind of journey is likely for at least the next 1 to 3 years. Travelers will have to accept significant extra personal data in their company profile and that this data will be required across various travel experience stages. Journeys will take longer and be more complex. Suppliers will need to be able to source traveller profile data quickly and safely to ensure that hurdles in airport, immigration and check-in can be accommodated. For a fun blog take on this, read Evi Hamilton’s 2023 Homeward Bound.
For several years, the business travel community has been talking about blockchain as some kind of mysterious wizardry performed by fintech geniuses in California basements and garages. Put this to one side and view blockchain as simply the packaging of sequential or related processes and products to drive efficiency and access to market.
Now apply this to the new world of post-COVID business travel and the opportunity is clear. It will be realized by smart thinking companies across the sector. Consequent processes and requirements for different markets and travelers could be quickly packaged into blockchain-style options to allow fast and flexible and, above all, safe and reliable booking, payment and authorization.
Public blockchains—or mainnets, as they are sometimes called—will become commonplace, allowing buyers and suppliers to work with accepted and referenceable sequenced processes according to different requirements. The key here is the impact of regulation or enhanced travel restrictions. Adding complexity to journeys by variance and destination. Public blockchains will allow different suppliers to enter processes to support the trip without the need for constantly reinventing the process. Need to travel with a combined visa/medical certificate and contact history? There’s a blockchain for that. Need to travel with a fixed return and a medical certificate and local contact point? There’s a blockchain for that too. And so on and so on and so on.
As John Wolpert from ConsenSys recently commented:
“In today’s world, supply chain networks have to provide stakeholders with confidence in the accuracy of their data, without forcing them to sacrifice security or control. Most importantly, interoperability must be assured in order to remove data silos.
This is where public blockchains can make all the difference. Instead of viewing a public blockchain – also known as a ‘mainnet’ – as a data repository, we should see it functioning as the lowest-level common frame of reference for distributed systems.”
Service & Account Management
In the new normal, expect changes to the largely relationship-orientated contract management and escalation processes of today. In many ways this will be driven by increasingly dynamic pricing and flexible financial modeling that will change the need for contract performance management and, at the very least, shift the goalposts on expectation and delivery. Many contracts will need to be re-evaluated, if not renegotiated. Volume and inventory commitments will need to be reviewed and businesses operating in purely transactional models will wish to move to partial enterprise-related pricing and management models.
Service delivery and escalation will change. Expectations will remain high but concerns will center on disruption services, destination information, on-trip contact and security and post-trip evaluation. Some of the previously understood offline service environments will not return, but new opportunities in policy alignment will offer expanded service roles for TMCs, hotels, airlines and others as they seek to inform and reassure travelers and travel arrangers through the new normal of our post-COVID business travel world.
This will in turn lead to a revolution in traveller-centric key performance metrics. It was already apparent pre-COVID-19 that we needed new expanded data sets to address areas such as traveller well being, sustainability and behavior. We can now add heightened profile measurement, contact data, on-trip safety and security and destination-specific requirements. Service Level Agreements largely based on speed and quality of response in the past will be replaced with multi-level policy and traveller centric performance reporting. Expect to see traveller-specific SLAs and compliance reporting as key parts of the contract management.
As ever, this evolving situation is fraught with complexity and predictions are risky at best. Safe to say opportunities for agile, flexible and intelligent companies will see some exciting new innovation continue at the expense of redundant processes and systems.
With air travel down 95%, and hotel occupancies in the single digits, travel suppliers have been left to wonder when the devastating impact on the industry will end and what it will look like when it does. One of the aspects buyers and suppliers alike need to explore is the expected pricing of travel services as we find the new normal in business travel. Below are some thoughts on where prices may be:
- Supply will be less than in the pre-pandemic world. Airlines will be smaller, and the number of available hotel rooms will be reduced.
- Likewise, demand will be less. Travelers will be reluctant to “jump back” onto planes and into hotel rooms until safety is a certainty. This will likely take the development of a vaccine. We are told this may be a year or more away.
- Maintenance costs for airlines and hotels will be higher. Airlines will be sanitizing planes each night and during stops in daily operations. This will increase supply and personnel costs as well as additional ground time. Hotels will be required to thoroughly sanitize rooms once each guest departs. This will result in increased supply costs and housekeeping staff time to clean each room.
- Airplane load factors will fall. Airlines may need to, for a period, fly planes with empty middle seats and/or empty rows to provide the comfort of separation to travelers. Lower load factors reduce the all-important RASM (Revenue per Available Seat Mile) across the airline.
So, where does this leave pricing?
Our expectation is lower, at least for a short period of time. Why? Because travel demand has shifted down while supply has been maintained (either on the ground and in the air) and supplier costs or CASM (Cost per Available Seat Mile) have increased.
Ultimately, however, our expectation is higher prices overall. The new normal is likely to include new aircraft configurations with fewer seats, and fewer aircraft overall. Demand may well be permanently lessened due to the success of improved, and now tried and tested, videoconferencing.
Fewer seats with higher costs to meet lower demand will lead to higher prices per trip.
Coupled with pressure from business travelers to enhance safety by making changes to travel policy, allowing for greater access to first and business class seats, and business travel costs are further increased.
Where does this leave hotel pricing? Likely lower for a period of time, but for much longer than for airlines. It will take hotels a long period of time to find the “right size” for the new travel market. We expect new hotel builds will be put on hold, older hotels will be taken offline, and overall supply will be reduced. Once this occurs, prices will return to at-or-near the same level as before COVID-19. This may well take years.
Finally, what might the result be for ground transportation? We see this as split into two categories: 1) taxi, ride hailing, and limo, and 2) rental car and rail. It is unlikely ground transportation prices outside rental car will decline for long. Costs, other than fuel, are not highly variable. And, fuel prices can vary widely in short time periods. This market will correct quickly. There will be fewer ride hailing and taxi drivers on the streets, and some limo businesses will contract or go out of business. Therefore, the supply will make a quick adjustment to the reduced demand, maintaining prices at near pre-coronavirus levels.
Rental car demand, however, is likely to rise. As it was following 9/11, the lure of a vehicle or car in which there is only one, or at most a few known passengers, is appealing. Airport “hassle” will likely increase with anticipated requirements for temperature checks or other health screenings. And, as we noted, air travel costs are likely to rise in the intermediate term. Therefore, for many trips of say, six hours or less, renting a car or taking a train will become an attractive option. Increased demand will naturally lead to higher prices, but even a significant increase in rental car prices will not be a huge overall cost increase to most managed travel programs.
This is our best guess on pricing as of today. There are many factors which could alter our thoughts on pricing. These include the extent of government intervention in the marketplace, the speed and success at which a vaccine for the coronavirus is developed, and the level at which travel alternatives are used going forward. What is certain is that these changes will lead travel managers to review and change their travel policies. Further travel managers will need to reevaluate their travel suppliers – where, how, and when they are providing their services – to ensure the travel program once again contains that best mix of suppliers to meet the new needs of their business travelers.
Things to consider:
- Negotiate new airline programs as soon as reliable data is available. With airlines downsizing there will be reduced flight frequencies, smaller gauge aircraft, and route realignment. All of this can have a significant impact in determining which airlines are best for your program. Therefore, you should consider a renegotiation of your airline program as soon as you have a reasonable understanding of your travel volume and patterns.
- Consider new ways to source your hotel program. Hotel rates will be volatile for a period of time. Therefore, you want to position your program to take maximum advantage of hotel price fluctuations. This is most easily done by implementing a program relying heavily on dynamic pricing with associated rate caps and/or target rates. Also, consider expanding the number of hotels in the program. Dynamic rates open the door to more competition for your traveler’s hotel stays in any given market. The prior days of reliance on fixed rates at preferred hotels are gone, and they might be gone forever.
- Give your rental car program some love. As a percentage of overall managed travel spend, ground transportation typically falls on the lower end. This often overlooked segment has historically been ripe for negotiation. Even with increased demand and prices, suppliers are likely to be open to negotiation with high value corporate clients. A good ground transportation program can not only improve savings, but increase traveler satisfaction and drive program compliance.
Given the economic toll on industries from retail to real estate to corporate travel, it’s no surprise that we expect to see significant financial fallout as the business world reorganizes in a post-COVID-19 environment.
The investments world uses the concepts of risk-on and risk-off to indicate whether investors are looking at taking on increased risk or lessening it. The Covid-19 crisis has dramatically increased uncertainty and therefore risk in the industry. Organizations will take a risk-off stance as they review their supply chain for both direct and indirect goods and services to ensure that core processes can continue.
A significant contributor to that uncertainty is the real concern whether all current suppliers will survive the downturn given the severe decrease in revenues across the travel sector.
With air, hotel, and car, alternative suppliers are expected to be available if one or more ends up in bankruptcy. With Travel Management Companies (and OTAs), however, significant disruption could occur if, and we truly hope this does not occur, an organization’s supplier failed. This could happen with very short notice. An ultra-fast sourcing process to qualify, select, and implement a replacement would be needed to minimize operational risk.
Regardless of whether an organization has to change its TMC, many organizations – in North America especially but also in Europe given the cancellation of so many flights – tracking and converting unused tickets into either refunds or credits will have a potentially large financial impact. This could range from 5-10% of annual air spend in Europe, and more in North America given the ability to store unused ticket value for up to a year (or two for some carriers). The February, March, and April time frame is among the largest in terms of business travel, making this issue an exacerbated one in the event of a TMC failure.
On an ongoing basis, organizations will have to work with their carriers or their TMCs to monitor ongoing changes to airline cancellation rules by fare class. Some airlines have offered to transfer unused tickets to UATP cards for future use but the issue of name changes remains unresolved for some clients.
In the event of an airline failure, outstanding ticket value could be lost completely. In the recent insolvency of Flybe, the airline advised that tickets booked on its flights would not be honoured. Travellers on trips booked by other carriers with a segment on Flybe could be rebooked at the discretion of the other carrier. To minimize exposure, travel managers should monitor for signs of weakness through their TMC, news sources, and investment notices, check carrier usage reports regularly to monitor exposure to carriers – how many tickets are booked by carrier – and communicate to travellers if a bankruptcy appears likely in order to avoid further exposure. Check the rules on any outstanding tickets to see if they can be rebooked on a partner airline.
Many travel managers have responsibility for meetings management within their organizations, and even if they don’t, the air component of meetings spend can fall into their area of responsibility. It is difficult to say whether the rapid and extensive switch to virtual communication will stick in the longer term, but we believe that it certainly will in the short and medium terms. The Economist reported that on March 23, the day the WHO declared the pandemic, 2.1 million people downloaded the Zoom app, and the use of Slack increased approximately 20% between February 1 and March 25.
Concurrent reduced demand for air and hotel will be a demand management proseletizer’s dream, and travel budgets could be reduced accordingly, but the value of contracts could decrease with reduced spend. It is difficult to forecast how and where supply and demand will intersect. With airlines in particular, vastly reduced supply with a lesser drop in demand could produce higher prices and lower discounts.
For those travel managers who are responsible for meetings, tracking and managing deposits made for now-cancelled events is likely material. Those with effective Strategic Meetings Management (SMM) programs in place should be able to readily identify outstanding deposits; others will have to scan ledgers and card reports to see what has been paid. Also, the effectiveness of their contracted cancellation clauses and their relationship with their venues and other suppliers will determine what the recovery or re-use of these funds will be.
Visa requirements for International travelers on short- and long-term assignments will change on a country by country basis, and organizations will have to ensure they are on top of the changes in order to avoid operational and reputational risk. Significant costs could be incurred if travelers are forced to relocate due to country regulations or changing market conditions.
Similarly, traveler monitoring costs could increase with more volatility due to the varying impacts in different regions. Domestic travel will need to be monitored more closely than previously as flare-ups within countries are likely to occur.
Other considerations on our radar include factoring in additional time clearing airport security with health checks being introduced, addition of personal protective equipment – masks in particular (on April 17 Canada introduced a requirement that all airline passengers traveling within, coming to, or transiting through Canada will be required to wear a non-medical mask). This would be a new indirect commodity for many organizations, introducing sourcing, risk assessment and distribution costs.
The financial implications of COVID-19 on corporate travel will vary from organization to organization but will be material for all. Engagement with stakeholders, internal and external, will be critical to minimizing the financial fallout and organizational risk in the post-pandemic environment.
Things to consider:
- Stay engaged with key suppliers. Keep in touch to understand their financial condition and outlook (and make plans to change rapidly if necessary).
- Review your unused ticket situation. Identify the outstanding value and work with carriers on plans for refunds or issuing credits.
- Analyze your meetings spend. Reduced demand for travel for meetings will be incremental to reduced transient travel and will need to be factored into budgets and airline negotiations.
- Review outstanding deposits for canceled meetings. Create a plan for recovery or re-use.
- Review international visa requirements. Ensure a complete understanding and communicate them within your organization to key stakeholders.
- Consider duty of care requirements. Ensure domestic conditions are considered alongside international travel risk for duty of care.